Kalkstein, Johnson & Dye, P.C. - (406) 721-9800 - 225 N Adams St, Missoula, MT 59802
(406) 721-9800 - 225 N Adams St, Missoula, MT 59802
Lawyering redefined
 

Real Estate Malpractice Litigation  

Gary, C.J. and Travis have litigated and consulted on hundreds of real estate malpractice claims involving agents, brokers, home inspectors, appraisers, and surveyors.  They have defended dozens of real estate licensees on regulatory issues before the Montana Board of Realty Regulation, and scores of other agents, brokers, and brokerages in more than 100 litigated cases across Montana.  We started to notice, though, that in handling all of those real estate malpractice cases, we never saw the same lawyer on the other side twice. 

These are important consumer protection issues that deserve attorneys with specialized knowledge and expertise.  Here’s how the cases typically break down:

          A.        Real Estate Agent & Broker Malpractice

Agents and brokers are most often sued for having failed to disclose or recognize “adverse material facts.”  An “adverse material fact” under the Montana Real Estate Licensing Act is “a fact that should be recognized by a broker or salesperson as being of enough significance as to affect a person’s decision to enter into a contract to buy or sell real property and may be a fact that (i) materially affects the value, affects structural integrity, or presents a documented health risk to occupants of the property; or (ii) materially affects the buyer’s ability or intent to perform the buyer’s obligations under a proposed or existing contract.”  M.C.A. § 37-51-102(2).

The failure to recommend appropriate contingencies or pre-purchase inspections is also a frequent source of liability.  The Montana Real Estate Licensing Act sets the statutory duties or agents and brokers, which vary according to the relationship at issue.  M.C.A. § 37-51-313.  In a nutshell, your agent must always act reasonably, disclose adverse material facts to you, and act in your best interests.  The other party’s agent must always act with you in good faith and disclose adverse material facts within his or her knowledge.  An agent’s failure to comply with the requirements of the MRELA is negligence.  If it is determined that an agent or broker violated the Act in receiving a commission, the district court must order that the commission received be returned to the aggrieved party and can order that the commission amount be doubled or tripled as an additional penalty. M.C.A. § 37-51-323(2).   

A common law professional-negligence claim typically accompanies statutory claims under the MRELA.  The failure to abide by professional guidelines or codes – for example, the Code of Ethics of the National Association of REALTORS® – is typically considered evidence of negligence.  See Menzel v. Morse, 362 N.W.2d 465, 473 (Iowa 1985) (recognizing that violation of the Code of Ethics of the National Association of Realtors is evidence of negligence).  Other potential claims against agents and brokers include negligent misrepresentation, constructive fraud, deceit, and violation of the Montana Consumer Protection Act.  The MCPA forbids “unfair or deceptive acts or practices” and includes discretionary attorney’s fees and up to treble (three-times) damages.  See Rohrer v. Knudson, 2009 MT 35, 349 Mont. 197, 203 P.3d 759; Plath v. Schonrock, 2003 MT 21, 314 Mont. 101, 64 P.3d 984; M.C.A. § 30-14-133. 

          B.        Home Inspector Malpractice

Read a home inspection agreement and you’ll discover that home inspectors take more than they purport to give.  The agreements: (1) claim that home inspectors do next to nothing; and (2) take responsibility for absolutely nothing.  Great work.  If you can get it. 

The agreements also attempt to insulate inspectors from the mistakes they haven’t even made yet, and usually contain a clause that says something like, “our liability is the cost of this inspection or $250, whichever is less.”  (Don’t sweat it – the majority rule says it’s an illegal exculpatory contract, and also a contract of adhesion, and also unconscionable.  Oh count the ways.  See e.g., Russell v. Bray, 116 S.W.3d 1, 8 (Tenn. App. 2003) (recognizing that a home inspection contract limiting liability to the lesser of cost of repair or amount of inspection fee, that “the exculpatory clause in the contract between Plaintiffs and Defendants is contrary to public policy and, thus, unenforceable”); Lucier v. Williams, 841 A.2d 907, 912-916 (N.J. App. 2004) (voiding a home inspection agreement’s limitation on liability as adhesive and unconscionable, and excoriating the defendant for having tried to use it in the first place)).  Nerd Alert: An encyclopedic discussion of the majority rule can be found in Finch v. Inspectech, LLC, 727 S.E.2d 823, 833-35 (W. Va. 2012) (finding that a home inspection contract limiting inspector liability was unconscionable and contrary to public policy, and citing more than twenty-five cases in support). 

The reality is that home inspectors provide an invaluable service to potential homebuyers – but only when they know what they’re doing and how to communicate their findings.  And the biggest problem with home inspectors in Montana is that the Department of Labor & Industry does not regulate the profession, at all.  There is no licensing or registration requirement, no disciplinary rules or proceedings, nothing.  The only remedy for victims of home inspector negligence is the Montana Homes Inspection Trade Practices Act, passed by the legislature in 1999.  See M.C.A. § 30-14-1002, et. seq. 

The Home Inspection Trade Practices Act loosely defines “home inspector” as anyone conducting a home inspection for compensation.  M.C.A. § 30-14-1002(3).  It defines “home inspection” and “home inspection report” as follows:

 (1) ‘Home inspection’ means a physical examination of a residential dwelling to identify major defects in various attributes of or attachments to the dwelling, including mechanical, electrical, and plumbing systems in addition to structural and other essential components.  Home inspections are performed for compensation and employ visual observation and the testing of user controls but not mathematical or specialized engineering sciences.

(2) ‘Home inspection report’ is a written document prepared by a home inspector for a client and issued to the client in exchange for compensation after a home inspection has been completed. The report must clearly identify and describe:

(a) the inspected systems, structures, and other relevant components of the dwelling;

(b) any major visible defects in the inspected systems, structures, and other relevant components of the dwelling; and

(c) any recommendations for further evaluation of the property by other appropriate persons.

M.C.A. § 30-14-1002 (1, 2). 

Most importantly, any home inspector who fails to comply with the requirements of the Home Inspection Trade Practices “is engaging in an unfair trade practice,” meaning that a violation of this Act is an automatic violation of the Montana Consumer Protection Act.  M.C.A. § 30-14-1005.  Increased (up to three times, or “treble”) damages and attorneys fees are therefore available, in the discretion of the district court, for violations of the Home Inspection Trade Practices Act.  

Related Blog Posts:

Statute of Limitations for the Montana Consumer Protection Act

Can I Sue My REALTOR(R) Under Montana Law?